Asia Logistics Wrap

Japan Logistics 2006: Wrap-up

Under "Japan Logistics" in the right-hand column, you can find the five-part series on Japan logistics for 2006. This series discussed the most prominent themes being discussed by logistics related firms based on a survey by the Japan Institute of Logistics Systems (JILS). The themes included Japan's economic recovery, globalization and SCM, the environment, RFID and personnel development. These issues are certainly not limited to Japan, and readers might find some value in comparing Japan's progress with their own country's progress. Also, these issues are obviously ongoing concerns and it will be interesting to see how they develop throughout the rest of the year. 

Reports on China Logistics

Browsing the Yahoo search engine to see where my site pops on when entering "china logistics" I came across a 2001 McKinsey report on the china logistics sector. Although now about 5 years old, just skimming through the report there seem to be some valuable pieces of information that provide insight into where current logistics issues have progressed from. I am posting the document here for the convenience of my readers.

Download mckinsey_on_china_logistics_2001.pdf

Also found during my browsing was this more recent report by the US Department of Agriculture for 2003:

Download usda_china_logistics_profile.doc

Hope these are useful!

Japan Logistics 2006: Part V

There are two segments left in my series covering the 2006 outlook on Japan logistics. For Part V, the topic is human resources, an area that has become more critical than ever to the logistics sector. For a medium-sized firm, finding the right people for the right positions at the right time is a difficult task. Currently, for firms that are primarily focused on trucking transport, finding drivers is the biggest issue. There is a significant driver shortage to the point that sometimes even if a company has a truck available to deploy there is no one to drive it. Combine that with the lack of talent and personnel development programs in-house and you have an industry that is experiencing pains in the face of increased competition due to deregulation, bankruptcy and consolidation.

Thus, it is no surprise that one of the important themes as chosen by JILS survey respondants is human resources.

"Personnel Development that Engages Logistics"

"Learn on-site and cultivate"

Watanabe: Even within all the topics to this point, talk of personnel has come up quite a bit. Regarding personnel development, it has been an important issue from years before and any corporation has worked on related policies. However, perhaps conditions haven't yet become satisfactory.

One thing that I personally am always feeling is that many logistics businesses, compared to other types, have hard time with the time and money applied to personnel development. I think this is linked to the fact that kaizen activities don't permeate logistics businesses, but if the lack of "time to spare" isn't improved upon I feel like personnel development won't be tackled appropriately. We are also facing the era of the babyboom generation gradually retiring. Whether it is putting those that do retire to practical use, or finding successors to pass on the necessary skills and knowledge, I feel the importance of personnel development.

Speaking from the viewpoint of university education, when speaking with human resources people from corporations of many years ago, they would say "we want personnel who can adapt to problem solving abilities." Recently, I am being told that "we want personnel who have problem detection abilities." By the way, looking at current school education, including university education, that kind of education doesn't exist. There are few opportunities to experience society through things like internships or volunteering, or opportunities to consider the skills and abilities necessary for oneself. I feel that schools and corporations must do more, related to personnel development, to cooperate in these areas.

Also, viewing the situation from the student perspective, compared to the logistics industry, popularity is high with the manufacturing and IT industries. From that point, I think the logistics industry must deepen its cooperation between not just corporations and universities but also high schools and middle schools.

Following the finding of employment, although training where skills resulting from hands-on work is necessary, if management is under pressure, that is the first thing to go. Touching on this point, if you take a look at JILS's "Logistics Professional Certification Seminar," it is always at overcapacity and thus it seems it is a certification that has real career value in the logistics industry.

Hayashi: Recently there is a fear of the "Year 2007 Problem." With that, I read one example of the ship building industry wondering what will happen once that year is passed by the many people born in 1947, which is the babyboom generation as mentioned earlier. In ship building, there are a lot of on-site skills that can't be put in a blueprint. So the problem comes about where the people who have those skills suddenly leave in 2007. The ship building industry, due to periodic downturns, is missing that middle-manager layer of skills and knowledge. With China's sudden upsurge as well, recently the industry is trying to insert new people and teach them as best as possible, but the younger people have a hard time with this pace of learning.

With the babyboomers, the built an era of advancement that said "if we don't do this, we can't reach the top." What that means is that we thought of and built things ourselves and made mistakes, outfitting ourselves with the power to go through the stage of overcoming those mistakes. However, today's younger people have lived in an era of stabilized growth and are not in a place to experience going through that "overcoming" stage.

But, that doesn't mean we are helpless. For those that are in the position to train others, it is important we do our best to make new people think. A variety of ways is ok, just do it. That will link with discovery. And if they seek to discover, they will begin to produce ideas. I think the point will be whether, and to what degree, seniors and superiors can create an environment that utilizes on-site resources and opportunities.

Our company is also directly facing the veteran skill successorship problem, and I am currently in the process of initiating the stage where we instill in our younger people those skills little-by-little.

Seien: Creating those opportunities for that kind of training is extremely important, and since in our case we don't have that middle layer generation, I completely sympathize with your sentiments.

With the manufacturing sector, many non-core areas of business are being outsourced, but I am personally worried about that trend. Even at a number of companies that I know, outsourcing is moving ahead and I feel things like people not knowing on-site conditions and technical skills dropping. Turning to logistics businesses, simply just demanding cost reductions is no good. I think both customers and logistics businesses must better understand that logistics is socially an extremely important infrastructure. Even with JILS's "Logistics Professional Certification Seminar," I heard that most of the participants are logistics professionals and that customers are few. I wonder if we are not getting more and more desk people who just don't know on-site conditions. I feel that this issue will be a big problem in the future.

Hironaka:  Logistics unique skills are a part of it, but I don't think there is any peculiarity to personnel aimed at configuring SCM. The ability necessary includes the process of:

• fitting people with a good balance of thinking power and people skills,
• making them sensitive to movement of goods/services in the world,
• discovering problems from facts on the ground,
• shaping the most prominent issues at hand, and
• connecting that to executable measures.

From that type of ability, if the power to work with related departments towards executing appropriate measures exists, regardless of logistics, this can be put to good use anywhere.

Related to what Mr. Seien said earlier, we are for the most part asking logistics businesses to handle our logistics needs. Of course, we also do our best to visit on-site to study and be aware of conditions, but this is kind of difficult. For example, for those employees aiming to become managers, they are visiting different sites each for 2-3 hours, analyzing problems noticed at those times and then writing reports. But to say that by doing this everything is OK is not right. I feel that there isn't much happening besides steadily piling on more work.

Watanabe: When I also visit work sites, production lines for example are very well run. But often when I then take a look at the logistics occuring before and after the line, there is a sense of disorder. From my take, it seems that it is because this work is just being sort of "tossed" to the logistics guys.

Hironaka: You are right. More so than production areas, I feel logistics areas are relatively slower or behind.

Seien: Toyota, in an effort to apply manufacturing floor thinking in logistics businesses, is leveraging its strength from the Toyota Production System in the process of employing logistics kaizen plans. I think this kind of methodology could be employed in many other corporations.

Takahashi: Personnel problems are an eternal issue. If you consider how we were when we were young, I believe we were being told the same things by our seniors. However, I see trends like IT transformation and globalization creating a more difficult context for today's young people than the era I entered the workforce.

One thing I can say, no matter whether you are a manufacturer, a logistics business, or a service provider, the basics of personnel development are found on-site, and instilling the power to work well at various work sites is imperative. No matter which school we come out of, when we enter a company we are amatuers and so it is also necessary to create an organization that will develop people. By prioritizing this organizational building, this will link to better response to changes and reaching a higher level.

Within that, it is important that the leadership have a clear image of the personnel it is seeking, and then train and educate based on that. Also, since no one is expecting that a person's character or abilities will grow by leaps and bounds in a day, this process must be considered over the long-term and not over just a short-term of 1-2 years.

In today's era, a variety of expertise is sought after, such as with 3PL and SCM fields. In the past, just hauling an object was considered fine, but since the term logistics has appeared, as everyone knows, people who are well-versed in operational kaizen, building control, process control, IT, finance, etc. are necessary. However, if you can clarify exactly what kind of personnel you are seeking, you can also develop that personnel in a planned manner. Even understanding this, it is absolutely important that a corporation's leadership possess a vision for its personnel.

COMMENTARY: I thought this section was the best and most interesting part of this series discussing Japan logistics in 2006. Working for a Japanese logistics firm, especially being a mid-size firm, the topic of the babyboom generation and the lack of a middle-layer of quality employees is readily clear and extremely frustrating as a relatively younger person coming from the United States. Also having just come out of 3 years of intense business education through graduate school, the lack of mutual learning and pursuit of personal development is often astounding. In fact, one of the reasons I have been working on this blog as much as I can is to help maintain a higher level of personal development, to stay sharp while working in a relatively low-intensity work environment.

I have several ideas for what needs to be done in my current firm's case, but these ideas are very difficult to implement as one person fighting a very ingrained organizational and cultural mindset. It is really like swimming against the current, and so you have to find ways to move the firm forward without alienating yourself. One way is to find those like-minded individuals both above and below your level of responsibility. The people below will let you know the dirt-level facts and circumstances in relation to their managers and the people above will help you push proposals. Department- and division-spanning projects are extremely difficult. Within a division you only have vertical "walls" to deal with; across divisions you have to figure for the horizontal walls as well, in addition to more vertical walls.

It has been mandated in my firm, for example, to "speed-up" in achieving a new level capability in terms of our logistics services--both customer-facing and back-office processes. However, when I proposed some training for our new hires in 2006 based on a request from HR, the content I proposed was considered "too difficult" or "advanced." In a Japanese firm like this one, that translates into "we can't train our new hires on something their bosses don't know or don't want them to know yet." In other words, fear and pride raise their ugly heads to impede progress--fear that subordinates will possess expertise not found in their superiors, pride that superiors don't need to rely on their subordinates in decision-making. This type of environment acts to drag down a company's progress and success. The necessary type of personnel development cannot survive this environment, or even begin. Navigating this type of environment requires skills that can't be developed in a graduate business program where 98% of students excel.

China Province Guide

I was browsing Asia Times Online and came across this interactive map of China which allows one to click on each province to learn more about its geography, economics and people. For those with specific provincial interests regarding China, or those just curious about the diversity of the Chinese mainland, I encourage you to explore this page.

The China Logistics Frontier: Japanese Models

Now that I am back from Shanghai, I wanted to jump back into discussing the China logistics frontier via the Supply Chain Brain article mentioned in previous posts. Since I am writing from Japan, it only seems appropriate to more deeply discuss the article's mention of Japanese influence regarding the development of China's supply chain infrastructures.

The article has a pretty good lead for this section of the article:

It’s no coincidence that this group approach to setting up operations is very similar to the classic Japanese keiretsu supply chain model where manufacturers and suppliers tightly integrate their operations and closely coordinate their responsibilities and interests. The large Japanese MNCs were among the first foreigners to invest in production and facilities and sourcing hubs.

In keeping with the keiretsu model, these Japanese manufacturers and retailers have included their traditional suppliers and service providers in their Chinese supply chains. Toyota, Mitsubishi, Sony and all of the other well-known Japanese MNCs have adopted a similar model for their Chinese operations. One additional element for the success of the Japanese companies has been inclusion of a Japanese 3PL to manage logistics for all trading partners in the supply chain.

Although the article focuses on Japanese MNC's, it doesn't mention the fact that Chinese businesses are eager to learn what they can from Japanese firms and then replicate what works best in a Chinese context. What my former boss told me at the Chinese IT services and consulting firm was that Chinese businesses may not prefer or even like the Japanese, but they know they must learn from Japanese business practices if they want to move ahead in their respective industries. Of course, logistics is no exception.

The article goes further to detail an example of how Japanese MNC's have enlisted Japanese logistics firms in China:

Nippon Express, or Nittsu, as it is called in Japan, was one of the first 3PLs to enter China. It serves a vital role in supporting the logistics needs of many of Japan’s large corporations there—from energy to automotive to consumer goods. It has 67 warehouses, freight depots and other logistics facilities throughout China.

“We often provide logistics to every company in the supply chain,” says Ron Sullo, senior manager of business development for Nippon Express USA. “We have developed an extensive logistics network in China, and that serves as the supply chain lifeline for both large and small customers there.”

According to Sullo, Nippon Express provides in-country logistics as well as export and import services. “We often act as the trading company for a Japanese buyer sourcing from a Chinese manufacturer, in which case we do the logistics as well as customs, forwarding, license, and international transportation.”

Piggy-backing on MNC's is a great way to gather additional business as those MNC's grow and expand their operations in a region such as China. As a global 3PL, the challenge is keeping up to speed with, or ideally ahead of, your MNC customers when it comes to supply chain logistics needs:

The key benefit global 3PLs bring to MNCs is a network of warehouses, distribution centers and other facilities that provide a built-in logistics backbone for their customers. And the 3PLs must constantly grow these networks to meet clients’ increasing needs.

For example, Nippon Express recently acquired a majority interest in Mitsubishi’s logistics operations in China, including 33 freight depots and DCs and a large trucking fleet. The additions will give Nippon Express’s network an even greater in-country logistics support capability for the Japanese companies and other MNCs in China. These clients can grow their exports from their Chinese factories.

According to Hitoshi Uchidate, director of Nippon Express in Shanghai, this export traffic for Japanese companies operating in China remains the 3PLs’ primary business, but manufacturing logistics is becoming nearly as important. Manufacturing operations consume all of the space available in most factories, so there is a huge demand for adjacent warehousing space to store raw materials and end-of-the-line production.

“The MNCs in China are eager to outsource their logistics,” says Uchidate. “The factories have just enough room for the manufacturing, so the 3PLs do the rest.”

Of course, Japanese businesses are not the only models for China's development of its own logistics infrastructure. But because of Japan's proximity, considerable amounts of trade with the Chinese mainland, technologicial prowess in several industries, and historically rapid industrial development, it is a source of models for China's own rapid growth--in economic, political, security and people terms. South Korea is already competing for this attention and adds to the strong integration of supply chains in Northeast Asia.

Thus, as an American firm, the whole Northeast Asia corridor must be considered thoroughly versus simply focusing on China or Japan or South Korea in isolation. I often criticize privately the tendency for many people to dismiss Japan in the "rush to China," whether it is studying Chinese markets over Japanese markets, or Chinese language over Japanese language. The truth is that there is no zero-sum game in Northeast Asia. A rising China does not necessarily coincide with a falling Japan because the region is far too integrated. Those who believe so will not only miss several business opportunities but underestimate the strengths of Japanese competitors.

In the next installment I will comment on the article's section on strategic growth.

Back from Shanghai

Tuesday afternoon I returned from a short 4-day trip to the Shanghai area. I visited a "historic" town called Xitang south of Shanghai where the infrastructure remains quite old despite adding modern conveniences such as electricity and air conditioning for housing. It was particularly interesting because the town has several access points but are manned by officers during certain times to take entrance fees. At other times, it is easy to come and go, especially in the dark of night. Access to the town is through specified and not really specified alleyways.

Since I am an obvious foreigner, it was hard for our hotel manager to sneak me in as a guest without paying during the day--a promise he had made to us but unfortunately couldn't follow through on. Even then, it was really cheap--like $4 or something.

But since the hotel was actually inside the city, we had no need to leave the rest of our time there. Some of the buildings were completely empty when looking inside, just rubble, bricks and trash laying on the floors. Down and through other alleyways we found mini-communities minding their own business, clothes out to dry on the lines, dogs laying on the ground, and generally messy yet practical living environs.

Outside the the town, however, one encountered a number of "run-down" conditions with trash piled in the water or outside crumbling, empty buildings. It just reminds a person that off the "beaten-path," conditions in China are still at extremes. Although an argument can be made in regards to what constitutes a "decent" standard of living, I would say developed sanitation systems are mandatory for strong health even if the surrounding infrastructure is dilapidated or old by modern city standards. Even in popular districts of Seoul, South Korea, I saw open piles of trash during my trip in 2000. That has been improved dramatically since around the 2002 World Cup. I expect events like the Beijing Olympics in 2008 to be drivers in China's efforts towards improving its citizens living environment in this regards. 

UPDATE: I was browsing Yahoo Movies and came across the new Mission Impossible III trailer. I quickly realized why there were lots of Tom Cruise pictures in Xitang when we visited--the town is part of the movie! It all makes sense now. :-)

The China Logistics Frontier: History

Continuing with a look at the September 2005 article at Supply Chain Brain (SCB), I'd like to delve into the recent history of supply chain development in China. Although I am nowhere near being an expert on supply chain logistics in China, this field has of course been long studied throughout Chinese history, primarily in the context of war. In Sun-Tzu's Art of War, supply chain management in warfare was approached through the "five ways" as described in Chapter 1. The "Way" refers basically to human resource management. "Heaven" are the natural constraints created by weather and other natural events such as earthquakes. "Ground" describes the terrain of operations, which in the modern era includes both sea and air. "General" refers to leadership. Lastly, "Law" describes the glue holding everything together--organizational culture and supply chain architectures as described in one of my previous posts.

In regards to modern China, these concepts have yet to be fully and successfully executed throughout the mainland even though implementation is improving rapidly starting with the port cities on China's east coast. Even in the face of the significant logistics hurdles still in existence across China, for businesses and professionals with even just months of experience operating in Asia, it is obvious as the SCB article states that "China already has become a supply chain hub covering the entire Pacific Rim and beyond."

The article does a good job at summarizing the lead-up to the present day in terms of establishing a solid supply chain in China:

"...setting up and managing an entire supply chain centered in China has proven to be a frustrating experience since the 1970s when China began opening its doors to foreigners. Faced with an unfathomable communist bureaucracy, the conflicting policies and regulations of various ministries, foreign investment restrictions, and a hopelessly inadequate infrastructure for transportation, utilities and technology, operating within China has been anything but a hospitable place to do business for the world’s multinational companies (MNCs)."

The article also summarizes the inadequacies of foreign firms when approaching China as it opened its doors to FDI:

"Fundamental issues such as marketing, logistics, supply chain management were never seriously considered. Since investments could then be made only through joint ventures with selected domestic Chinese companies, many of which were state-owned enterprises (SOEs), no due diligence of these partners was done. The focus was solely on first mover advantage to gain access to China’s huge population."

The managing director of Technomic Asia (a Shanghai-based strategy firm), Steven H. Ganster, is quoted heavily. Here is comments on the above approach by foreign firms:

""Companies left their common business sense at the border," says Ganster. "They assumed that their partner knew all about local marketing, logistics, etc. They forgot that China is a centrally planned economy that ignored such things as marketing. It was about meeting production quotas handed down from the government and little else. These Chinese partners primarily contributed bad facilities, poor management and lots of debt. As a result, the latter half of the 1990s was about getting out of the bad ventures.""

As many are aware, many of the biggest changes have occurred since China's entry into the World Trade Organization (WTO) and MNCs have adapted their tactics for a rapidly changing operational environment. These adjustments are not being made just within China, but with the entire region in mind. As the article states, "Foreign companies that previously had operations in Hong Kong, including nearly all of the global third-party logistics providers, are now allowed to locate wholly owned operations anywhere in the country."

Ganster describes this phenomenon using the example of a client:

"...foreign investment in China is now typified by a migration cycle led by large MNCs seeking to set up entirely new supply chains in China. He says one of his clients, General Motors, is a leading example of how MNCs are importing their entire supply chains into China. To be competitive for the domestic Chinese market, GM needs local production that is high quality, dependable and low cost. It turned to its traditional tier-one suppliers like Delphi and asked them to set up manufacturing operations in China to serve the GM plants. That migration is well under way, and tier-one suppliers are bringing more of their production to China in order to serve GM with the same manufacturing logistics they provide elsewhere. According to Ganster, the next phase, and the most risky, is just beginning. The tier ones are now telling their tier-two and tier-three suppliers that they have to be in China to supply them on a local basis."

He also notes that "the biggest fear for the U.S. supplier is that a Chinese supplier will gain a foothold with their traditional customers, and that local Chinese supplier will soon become a global supplier." In this instance, "the downside to a supplier refusing to go to China could be very significant."

How is the government adapting at the same time?

"Competition within China is super-heated thanks to the WTO agreement that has allowed hundreds of foreign companies to take on local Chinese SOEs. Most of the SOEs are simply not competitive because of poor procedures, lack of technology and staggering debt loads. ""The government wants to get out of these businesses, so they are closing them down or forcing them to privatize," he says. "But this transformation is causing unemployment in certain areas, and that scares the government." To avoid social unrest, foreign investment is welcome at all but the highest level of the industrial hierarchy. Provincial and local governments—not Beijing—are orchestrating policies to create jobs in their regions and to make local industries competitive. These foreign companies set up supply chains made up of other foreign suppliers."

And what comprehensive view on China is complete without discussing "guangxi?"

""Nanking, just west of Shanghai, is the Detroit of China," says Ganster. "The automotive OEMs and tier ones use their leverage with the local government officials to help their suppliers to set up operations there. It is a form of the classic Chinese practice of guangxi, which means using connections and relationship to make things happen.""

Of course with any foreign business venture, "investing in China, even to serve a large, familiar customer, does not guarantee financial success. Overcapacity already exists in many industries. And prices are continuing to drop, which is causing extreme cost pressures that companies new to China are ill prepared to deal with."

Ganster wraps up this portion of the article by saying, "The supplier has to make the call of whether this move is important enough for the long-term relationships and business opportunity weighed against the risk."

COMMENTARY: Although I have yet to engage in supply chain work on mainland China, during my first trip to China in the summer of 2004 as an intern for a Chinese IT services and consulting firm, I helped with some advising on the adoption of Western management tools. In this case, the client was China Construction Bank in Jinan, capital of Shandong Province. The craving for such tools was amazing even when the firm was nowhere near being able to properly implement their use. Having recently discussed mainland supply chain opportunities with officials from Jiangyin on the Yangtze River, I feel the same craving exists for supply chain expertise and investment. As I will discuss in my next post using the SCB article, Japan is one of the major players in this transfer of knowledge and investment capital.

The China Logistics Frontier: Intro

I have posted on China logistics in the past through a few different articles, but earlier this year I cam across a much more comprehensive piece of reporting at Supply Chain Brain. The article is entitled, "Logistics Inside China: The Next Big Supply Chain Challenge," and provides an overview of the development of logistics inside China along with issues to consider into the future. I am going to dissect the article into sections, with this post being an introduction relating my personal thoughts on the Northeast Asia logistics hub.

One of the reasons I wanted to start my post-MBA career in Tokyo was its proximity to the rest of Asia. In addition, almost every major firm in the world has an office here or an affilliate that manages its Japan business. As stated in the article, China has "already become a supply chain hub covering the entire Pacific Rim and beyond" and even though I work for a solely domestic logistics firm, the impact China has on Japan is noticeable everyday in terms of the "four flows of connectivity" I have discussed in a previous post--security, economics, politics and people.

In many ways, China has a clean slate to work from that most certainly Japan and in some ways South Korea cannot replicate. Japan has made years of infrastructure commitments that pretty much never considered a national logistics strategy. Projects were compartmentalized based on the desires of politicians to please their constituents or, in the worst cases, line the pockets of construction firms with close connections. Thus, from ports to bridges to roads to airports, the Japan government's series of infrastructure decisions has made managing logistics in Japan uniquely challenging. And with space at a premium, there is little room for fixing any mistakes.

South Korea has similar problems, but was far enough behind Japan that it has been able to learn from its mistakes and also replicate successes elsewhere in Asia--such as Singapore's port infrastructure. But even as its Pusan and Incheon ports progress ahead of Japan's ports in Tokyo, Yokohama and Osaka, South Korea's ground logistics are also some of the most costly to manage. A potential long-term advantage for South Korea lies in the possible unification with North Korea, creating land access to China's northern provinces. But any substantial value in reunification is very far into the future, even if events to normalize relations and establish economic links happen in the next 10 years. The difficulty of political and security flows, in addition to people, will put a drag on any economic activity that would enhance ground logistics advantages for South Korea.

China's clean slate is in the fact that firms can often shape and position their supply chain from scratch in China, locating every stage of a manufacturing process from low-tier suppliers to final assembly and distribution in one city. Of course this isn't always the case, but with the influx of global expertise on supply chain management in parallel with FDI, China is able to better form a national logistics strategy drawing from best practices and avoiding the mistakes of countries like Japan. However, that is not to say China isn't learning a great deal from Japan in terms of knowledge and technology transfers. Japan excels in manufacturing infrastructure and China has copied Japan a great deal in regards to establishing successful manufacturing hubs. China just copies others when it comes to logistics, especially port management.

This process of best practice sharing isn't perfect in China either. Government bureaucracy is bureaucracy no matter which country one considers and already many are questioning port development decisions such as Yangshan near Shanghai. At the same time, the inland frontier of the mainland is still economically severed from the cities on the East Coast due to the poor logistics infrastructure. As the inland "satellite" cities continue to grow, links to the East Coast will strengthen and offer additional logistics options to those operating in China.

Over the next few days, I will go into some more detail using text and examples from the article.

Brief on China's Airports

Although a lot of my focus on logistics relates to ground and sea transportation, air transport is obviously an area I can try to draw some more light on. Earlier this week I came across an article in Logistics Management Online: China's Need for More Airports.

I like the article most for all its statistics. Here are the highlights:

• There are 196 certified airports for transport aircraft and 329 "General Aviation Temporary Landing Points" to serve China's 1.3 billion population (although obviously the market size isn't that big).
• The USA: 14,807 airports for 270 million people.
• Australia: 444 airports for 20 million people.

In other words, if everyone in China wanted to fly today and divided each airport evenly, each airport would have a line with 6.6 million Chinese. The USA would have lines of just over 18 thousand, and Australia just over 45 thousand.

Although the country has invested $30 billion since 1990 in upgrading 90 landing fields and building 47 new airports, development has lagged demand considerably.

Also, as is to be expected, airline operations are concentrated in the coastal regions, with the three major cities accounting for almost 50 percent of departing seats in the Chinese mainland. Although China's western regions account for half of the country's area and 13 percent of the population, they only produce 0.8 percent of the departing seats according to the "2004 Airport Analysis" by Aircliams International Transport and Tourism Consultancy.

All in all, the Center for Asia Pacific Aviation estimates China will have 240 commercial airports by 2010.

Japan Logistics 2006: Part IV

Continuing what is becoming my series on Japan logistics in 2006, the next segment is on RFID. Although the R&D behind RFID and its application of progressed quickly in the USA, and perhaps Europe as well, Japan has only recently deregulated frequency standards that will allow RFID to be utilized across its domestic industries. Consequently, RFID has lagged in terms of speed to market, total R&D investment, and practical application.

With recent deregulation, more and more firms are anxiously exploring the use of RFID in their domestic supply chains. The discussion in this portion on Japan logistics forms around the title:

"A Logistics Configuration that Supports the Life of the People"

"The High Expections and Remaining Issues with RFID"

Watanabe: In logistics, the "end game" is not the firm's benefit, but the benefit of the consumer. One factor in this securing traceability. Regarding the RFID technology to support that, this is an area that is of particular concern amongst the members of JILS. Based on the member survey, the service industry especially showed the most interest in this theme.

Seien: Yes, these 2-3 years, the interest towards RFID has become higher and higher. There are primarily four purposes to RFID. The first is visibility. When managing processes on the production floor, since one would be able to grasp position information at all times, this is moving forward greatly in factories such as those producing medical supplies. The second is efficiency. Since non-contact, multiple-simultaneous recognition is possible, one can then, for example, run auto-inspection of product riding pallets. However, due to insufficient reliability in terms of ID reader accuracy, this type of usage has yet to completely spread. The third is safety, which can also be incorporated into traceability. In America, the purpose is theft prevention. The fourth purpose is service improvement. At places like supermarkets, producer information can be identified. It could also perhaps be applied in public services as well, you know.

RFID's greatest characteristic is the non-contact, simultaneous identification. Besides that, most of the other areas can be covered with bar codes. So as long as the differences deepen and the cost becomes cheaper, I believe it will spread quickly.

Hironaka: In our position, on a daily basis we are flying loads of parts to all over the world. If for example one automobile contains 10,000 parts, with an annual 4 million autos we are considering approximately 40 billion parts. Including other products and after-service, that takes the annual number up to around 100 billion components. To perfectly get a handle on this is next to impossible. In the future, I think innovative objects using "log technology" will be necessary, but right now there are no good ideas tying that directly to RFID. We are "raising our antenna" so to speak in keeping an eye out for new ideas that can manage this integration.

Watanabe: With RFID, really the tough part is the cost aspect, right.

Seien: When two-dimensional bar-coding appeared, those corporations that introduced it made investments in-line with the system changes. Even if RFID systems become cheaper, considering the IT technology associated with such systems, there will be many corporations that won't immediately jump on the bandwagon.

Hayashi: Although there is demand for traceability, there is certainly a large portion of logistics that can satisfy such demand through using bar codes versus RFID. With our medical device customers, tracing has become intense with reforms in the Pharmaceutical Affairs Law. As a result, RFID is being used in manufacturing processes, but in subsequent processes demand is being met with bar-coding. Where input data volume increases or changes are necessary, there seems to be a definite future for RFID.

However, at the current moment, there are issues remaining with RFID. As we heard from Mr. Seien, added to the technological problems involved with simultaneous ID inaccuracies and manufacturing costs, there is the social consideration of leaked individual information. Internationally, standards are converging on those established in the West and so Japanese makers are having a tough time. Environmentally, there is absolutely no area specializing in recycling of RFID components at the current stage.

The most important problem is utilization. Since it feels like the tool has appeared first without a use, from here on just how this will be used is for the world of imagination. I am wondering whether RFID will have real utilization value in a "simple to use anywhere by anyone" ubiquitous sense. I'm also wondering if cell phones won't target the role of RFID expansion. If RFID tags could be ID'ed with cell phones, which are quite ubiquitous, then for example, vegetables with RFID could be ID'ed with cell phones at the supermarket enhancing traceability. If RFID becomes easy to use in such a way, I would feel the the era of RFID had arrived.

Keeping that in mind, in November of 2005, three new companies were given permission to start cellular businesses, including Softbank. With the participation of such companies as Softbank, it is expected that an environment where a variety of information fed through cell phones will further expand. In the Fall of 2006, cell phone users will be able to change service providers without changing their cell phone numbers, a new number portability system. With a variety of events converging in such a way, it seems the path for RFID will come about.

Takahashi: There is certainly a lot being expected of RFID, but it seems its introduction is a meandering path. If you take a look at the survey, there are the high expectations by the service industry, but first considering the leaking of individual information there are areas that touch upon the actual life of citizens. In figuring out what range of use is appropriate, an understanding of our national society that includes safety is necessary.

COMMENTARY: There isn't too much I want to comment on at this point. My firm was once part of a bid proposal that included utilizing RFID here in Japan. Although the bid fell through due to the potential client's reconsiderations regarding Japan operations, it was a good chance to see what kind of environment might be appropriate for RFID use here in Japan. Having been in presentations about RFID by firms like Accenture since 2002-2003, USA-based operations are much further along in terms of its application and potential, including R&D. But the cell phone comments are interesting. My own phone can be used as a bar code reader, and I can even download directions, websites, etc. from my computer screen when bar codes appear on certain Japanese websites. Then I just access the information on my cell. I haven't used it much, but I'm sure I will after a bit longer in Japan.